Washington banker who hid bank's losses agrees to prison term

BY LEVI PULKKINEN, SEATTLEPI.COM STAFF

Published 12:50 pm, Wednesday, August 21, 2013

One of two Summit Bank leaders accused of lying to federal regulators while running now-defunct Skagit County bank has pleaded guilty.

Charged alongside his son on Thursday, former Summit Bank CEO James Bishop stood accused of lying in reports to the Federal Deposit Insurance Corp. in an effort to hide the bank’s mortgage losses from the government insurer. Bishop, 70, and son James E. Bishop II controlled a majority of the bank’s shares and are alleged to have hidden past-due loans from the FDIC to make Summit appear viable.

The elder Bishop pleaded guilty Wednesday to a single criminal count related to the scheme. Bishop II is slated to appear Sept. 5 in U.S. District Court for a plea hearing.

Bishop will face at least a year in prison when he is sentenced this fall. The plea agreement inked with prosecutors allows for a sentence as long as 3 ½ years in federal prison, though it will be up to Chief U.S. District Judge Marsha Pechman to decide Bishop’s punishment.

In a statement following Wednesday’s plea, FDIC Office of the Inspector General Special Agent in Charge Wade Walters placed Bishop among those “bank insiders” who’ve attempted to cheat regulators.

“It is fitting punishment that Mr. Bishop will be imprisoned, fined, and prohibited from participation in the affairs of any federally insured financial institution,” said Walters, the FDIC’s top law enforcement agent in the region.

Regulators first raised concerns with the Bishops in late 2008, and, in June 2010, forced the bank into an agreement prohibiting it from lending more money to borrowers who were failing to pay their debts. No new credit was to be extended to borrowers who had past-due accounts.

According to charging papers, Summit’s finances continued to sink in the months following the agreement. State regulators working with the FDIC shuttered the bank in May 2011.

Federal prosecutors contend the Bishops hid millions of dollars in past-due loans from federal and state regulators.

A year before the bank was closed, the Bishops told regulators the bank had only $6 million in outstanding past-due loans, federal prosecutors in Seattle contended in court papers. In fact, the bank held more than twice that amount in bad loans.

“Our economy depends on every bank following the rules. Banking rules protect individual depositors as well as our financial system,” U.S. Attorney Jenny A. Durkan said in a statement. “These defendants – both experienced bankers – took a myriad of steps to hide the true financial condition of Summit Bank from federal and state regulators.”

Working in concert, the Bishops overdrew customers’ checking accounts to pay their past-due loans in order to hide the extent of the trouble at the bank, federal prosecutors contended in charging papers. They are also alleged to have changed the terms of loans or extended new loans to overdue borrowers to hide the bad loans.

In addition to lying to regulators, the Bishops are alleged to have hidden delinquent loans from the Summit Bank board. According to prosecutors, the men also went so far as to use collateral offered to cover new loans to repay past-due loans, without the borrowers’ signing off.

Bishop served as CEO and chairman of Summit bank from 2005 until November 2010. Bishop Jr. served as bank president from 2005 until April 2011.

“When we put our money in a bank, we also place our trust in those who operate it,” FBI Special Agent-in-Charge Laura M. Laughlin said in a statement.

The elder Bishop previously agreed to pay $300,000 in fines to the FDIC and no longer work in banking. He is scheduled to be sentenced Nov. 15. Neither man is currently jailed.